EDITORIAL: After the Ford closure: the future of the car industry

by Peter Westmore

News Weekly, June 8, 2013

Ford’s announcement of the closure of its manufacturing operations in Australia from 2016, with the loss of over 600 jobs in Geelong and over 500 at Broadmeadows in Victoria, is a body blow to the motor manufacturing industry, affecting hundreds of component manufacturers and thousands of their employees across the country.

It will leave only two car manufacturers in Australia, Holden and Toyota, and seriously erode the economies of scale needed to preserve viable motor manufacturing in this country.

The announcement was not entirely unexpected. Ford has lost $600 million over the past five years, and it had earlier announced that it was reviewing its manufacturing operations in Australia, in light of high production costs and low export volumes resulting from the high value of the Australian dollar compared to other currencies.

What was surprising was that, apart from hand-wringing over employees’ entitlements and ability to get new jobs, and comments that the closure was “inevitable”, little attention was paid to the strategy needed to ensure a sustainable motor manufacturing industry or, more broadly, to the necessity to preserve secondary industry in Australia.

One leading economist, Henry Ergas, wrote a feature article in The Australian headed, “Auto industry in its death throes”, which described the many attempts by governments over the decades to protect and subsidise the Australian motor industry.

He was utterly dismissive of attempts to preserve car manufacturing in Australia, claiming that all attempts to support local industries had failed, and condemned both government and opposition for “throwing good money after bad”.

He attacked the unionised workforce which had resulted in “the assisted survival of the unfittest, preventing the transfer of resources to what otherwise might have been flourishing rivals”.

He attacked the motor manufacturers, particularly Ford, saying, “As the $1 billion [subsidy] Ford has received in the past six years attests, the firms with the greatest bargaining power are those closest to going under, because they have the most credible threat of inflicting job losses and political pain.”

He dismissed Australia’s whole motor vehicle manufacturing industry, saying it was “now dwindling into insignificance”, although the number of cars manufactured exceeds 200,000, and 50,000 people are directly employed in the industry, according to a chart which accompanied his article (The Australian, May 25).

While hard-headed realism is a virtue, the unspoken alternative to a healthy manufacturing sector is to build an economy to employ Australia’s workforce around IT, education, finance and tourism.

The fact is that attempts to build economies based purely on service industries such as education, finance or tourism, as some European countries have done, or excessive reliance on Australia’s highly successful mining industry, will create an unbalanced economy with chronic high unemployment and exposure to the volatility of commodity prices and the financial markets.

As today’s successful economies in Asia show, to survive in the complex global environment of 2013 requires a balance of productive manufacturing, agricultural, mining and service industries.

Downstream processing from Australia’s highly productive agricultural and mining industries, already being done in some parts of the country, should be a high priority, as a means of value-adding to bulk commodity exports.

In the meantime, what can be done about car manufacturing? Both the federal government and opposition have rejected calls from some ALP politicians and unions for restoration of tariffs.

While these are technically possible — the World Trade Organisation Agreement on Safeguards (1995) permits the imposition of temporary tariffs to protect endangered industries — they cut across what governments of different persuasions have done for years and could potentially expose Australia to the threat of trade retaliation.

But much can be done within Australia. According to Victoria’s assistant treasurer, Gordon Rich-Phillips, both the Coalition government in Victoria and the ALP government in South Australia have a policy to buy Australian-made motor vehicles, where possible. As a result, some 80 per cent of Victoria’s government car fleet is Australian.

No other state, nor the Commonwealth government, has a policy of buying Australian first. As a result, the number of Australian motor vehicles sold to governments has fallen to about 19,000, the lowest level for many years (Sydney Daily Telegraph, August 16, 2012).

It is to be hoped that the next federal government will bring together all levels of government to adopt a policy of buying Australian first — and not just in motor vehicles.

Tax incentives for buying Australian are far more likely to succeed than direct subsidies, because they provide a powerful incentive for manufacturers to remain competitive.